Wednesday 7 December 2016

Charlie Weston: We've been ditching our credit cards in record numbers since 2008

Flexible friends? Get on the wrong side of a credit card provider and you will see just how inflexible they can be

Published 29/01/2016 | 02:30

CREDIT card bills run up at Christmas are landing around now.

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That bargain in a shiny box may have seemed like a great idea in the rush before Christmas, but it might not now that the cost of it has been added to the other spending at that time to create a bumper bill owed on the plastic card.

Advertisers like to refer to credit cards as flexible friends. That is marketing bilge. The reality is that credit cards are inflexible fiends.

Friends do not overcharge you, and impose penalties when you can't pay.

Get on the wrong side of a credit card provider and you will see just how inflexible they can be.

Moneylenders and credit card providers have a fair bit in common - they both make it easy to get hold of credit and they both charge a lot for that credit.

At a time when wholesale and European Central Bank interest rates are on the floor, it's the card issuers and regulator Central Bank who need to explain why annual interest is close to 23pc for purchases on a card.

Data set from the Central Bank shows that there are close to 1.5m personal credit cards in active use, with almost 4m debit cards actively used.

With a debit card you can only spend money if you have it in your current account. Credit cards are a form of high-interest borrowing.

Thousands of consumers who have a credit card are exceeding their credit limits.

This means they are triggering interest rate charges of up to 22pc and "over-credit-limit" penalty payments.

The figures show one 8.5pc of all credit card users smashed through their card limit in October.

A Central Bank spokesman said this works out at 51,000 credit card accounts, most of which are held by consumers.

Not clearing your card balance every month will mean interest charges as high as 22pc on the outstanding balance.

And exceeding the approved credit limit will mean charges of between €7 and €8.50, depending on the card provider.

The good news is that we have been ditching our credit cards in record numbers since the crash in 2008, and also paying down the debt on them.

There has been such a frenzy of consumers getting rid of the expensive cards that householders now have 500,000 fewer card accounts than during the boom.

Financial experts said savvy consumers had wised up to the perils of high-cost lending on the plastic payment methods.

Almost €1.3bn has been paid off credit card balances since the levels of debt on them peaked in 2008, an analysis of Central Bank figures shows.

But official policy is to encourage us to use electronic payments methods, like credit cards, instead of cash.

The Government has been actively encouraging people to move away from cash to use electronic payments.

Finance Minister Michael Noonan recently called on shops to cut their prices after new lower fees for retailers when processing debit and credit cards come into effect.

In the Budget the Government imposed a 12c charge for ATM cash withdrawals, up to a limit of €5.

Here are some tips to control credit card debt:

Q Just avoid using it. Using a credit card can become a habit. Occasional or online purchases are fine, but if you use it to pay for the weekly groceries then you are really in trouble.

Q Clear as much as you can as quickly as you can.

Q It's the highest interest-bearing loan you have, so it should take priority.

Q Consider reducing the limit you have - banks will often offer you more, but you can tell them that you want it capped.

Q Never use a credit card to withdraw cash from an ATM. The rates charged for withdrawals are far higher than for purchases, and there's an additional "cash advance" fee also.

Q Think about setting up a direct debit to pay your card bill every month before the due date. This helps you to avoid late payment fees.

Q You can set up a direct debit for a certain percentage of the bill, or a certain amount every month so that you are not tempted to only pay the minimum balance.

Irish Independent

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